Cash Balance Hedging

Cash balance plans pose distinct challenges to controlling investment risk and ensuring a sufficient hedge against the liabilities. Our LDI Solutions team has significant expertise working with a wide range of cash balance plans with varying interest credit provisions, lump sum provisions and grandfathered benefit provisions. Our actuarial expertise allows us to liaise with the plan's actuary to develop a deep understanding of the liability risk exposures which ultimately allows us to design customized investment solutions for each component of the liability structure.

ICR TypeExampleLiability RiskHedging Strategy
FIXED4%Similar to traditional plan (rate and spread risk)Long-duration fixed income
MARKET YIELD WITH FLOOR OR CAP10-year Treasury with minimum of 4%Varies depending upon above or below floor/capDynamic solution utilizing derivative overlay
MARKET YIELD WITH NO FLOOR OR CAP30-year TreasuryLiability has spread risk but minimal interest rate riskLong-duration investment grade credit with derivative overlay

The ability of an actual portfolio to deliver the required cash flows is not guaranteed and is subject to a variety of factors including, but not limited to, the availability of bonds, active management and trading, transaction costs, default risk, reinvestment risk, rebalancing risk and liquidity risk.

Commodity, interest and derivative trading involves substantial risk of loss.

Any investment that has the possibility for profits also has the possibility of losses.

This is for informational purposes only and should not be construed as investment advice. Investment decisions should consider the individual circumstances of the particular investor. Any opinions or forecasts contained herein reflect subjective judgments and assumptions of the author and do not necessarily reflect the views of Loomis, Sayles & Company, L. P. Investment recommendations may be inconsistent with these opinions. There can be no assurance that developments will transpire as forecasted. Examples and analysis are provided for illustrative purposes only and do not represent actual accounts. Accuracy of data is not guaranteed but represents our best judgment and can be derived from a variety of sources. Opinions are subject to change at any time without notice.